When Planning to Terminate a Massachusetts Employee, Always Carefully Plan the Final Payment
When an employment relationship goes wrong and an employer is faced with terminating an employee, the employer has to evaluate a number of considerations, often within a very short timeframe. However, regardless of how urgent and stressful the situation may be, the employer should always remember: in Massachusetts, pursuant to the Massachusetts Wage Act, G.L. c. 149, §148 (the “Wage Act”), an employee who is terminated* must be paid all wages due, in full, on the day of discharge. Employers who run afoul of the Wage Act and are sued by the discharged employee will be required to pay the terminated employee three times the amount of wages in question, plus the employee’s legal fees – even if they pay those wages just a day late.
It is very easy to accidentally violate this rule. For instance, an employer might cut a check on the day of discharge and drop it in the mail that day. However, if the check is not delivered to the employee that same day, technically the law has been violated. What if an employee was discharged on a day when a third-party payroll processor was not open, or what if payroll needed an extra day to calculate certain earnings? Again, while these appear on their face to be reasonable and good faith explanations for delay, the Massachusetts Supreme Judicial Court held in a recent case (Reuter v. City of Methuen, 489 Mass. 465 (2022)) that the employer’s intent is irrelevant. Whether the employer deliberately or accidentally pays the wages late, the late payment triggers “strict liability” under the Wage Act.
Another wrinkle of the Wage Act is determining what constitutes “wages” that are in fact due. For example, accrued but unused vacation or paid time off counts as “wages” due upon discharge, and certain commissions or other incentive pay may also be due, depending on the exact wording of the commission agreement or incentive pay policy in question.
What if the person being terminated is called a “contractor,” or a “partner,” or even an “owner?” Employers should be cautious not to rely solely on a person’s title when making decisions regarding the timing of a final payment. In Massachusetts, the question of whether someone is in fact an “employee” (bringing the Wage Act into play) is determined by looking at all circumstances surrounding that person’s work with the employer, rather than being decided based on job title alone. Disputes regarding whether an individual was an employee, and what payment was actually due to that person on the date of discharge, are hotly litigated in Massachusetts courts.
How can employers avoid running afoul of the requirement to pay terminated employees in full on the date of discharge? If it is at all feasible to plan and schedule a termination in advance an employer can avoid the pitfalls of the Wage Act. Employers who need to move quickly (for example to keep a particular employee out of the workplace due to safety concerns) may consider suspending the employee and waiting to officially terminate the employment relationship until the final pay can be calculated and delivered timely. An employment attorney can help an employer evaluate the strategy and risks around a termination, and guide the employer in balancing the business’s needs with relevant legal considerations. When it comes to ensuring terminated employees are paid on time and in the correct amount, a little planning goes a long way.
*An employee who resigns (as opposed to being terminated by the employer) may be paid on the following regular payday, or if there is no set payday, on the following Saturday.
Julie Martin is an Employment Law and Litigation attorney at the Boston-based law firm of Conn Kavanaugh Rosenthal Peisch & Ford, LLP. She can be reached at jmartin@connkavanaugh.com.
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